Competitive Strengths

Sizeable portfolio of stable revenue generating assets with robust cash flows.
The Trust’s initial portfolio will consist of 9 Initial Portfolio Assets, with a total length of approximately 682.425 km and 2,059 km lanes, located across national highway networks in seven states in India. These projects are situated on national highways that experience both commercial and passenger vehicular traffic.

As all of the Initial Portfolio Assets are based on the Hybrid Annuity Model (HAM), the Trust’s revenue is expected to continue in the future through interest income from financial assets receivable from NHAI, revenue from operations and maintenance of roads, construction services, and operating revenues from NHAI. Under the HAM framework, the company derives its revenue from concessions during the construction phase, EPC revenue, annuity revenue, interest on project costs, inflation-linked O&M fees.

Several of the Initial Portfolio Assets have been receiving regular semi-annual annuities from NHAI since January 6, 2021. As of September 30, 2024, the total annuity received amounts to ₹5,544.59 million. The remaining terms of the concession agreements for these assets range from 10.09 years to 13.84 years as of September 30, 2024

Geographically diversified road asset portfolio and revenue base
The Trust’s operational HAM assets are located across seven states in India: Haryana, Rajasthan, Bihar, Uttarakhand, Himachal Pradesh, Madhya Pradesh, and Karnataka. The geographic diversity of these assets is expected to enhance the Trust’s experience and expertise, particularly in evaluating, acquiring, operating, and maintaining new projects.

The Concession Agreements for the Project SPVs are temporally diverse, with residual operational periods ranging from 10.09 to 13.84 years. This geographic and temporal diversification, combined with the project manager's expertise gained from existing projects, provides a strategic advantage in seizing new opportunities in the roads and highways sector. The Trust believes this diversification reduces reliance on any single project and mitigates the potential impact of economic downturns, force majeure events, or issues related to specific projects.

Attractive industry sector with strong underlying fundamentals and favourable government policies
The roads and highways sectors play an important role in the overall economy of India. The development of the infrastructure sector has been a priority area for the Government and has witnessed enhanced public investment over the years. In the Union Budget for Fiscal Year 2023-24, a total of approximately Rs.2.7 trillion has been budgeted for the MoRTH, which is 25% higher than the revised estimates for Fiscal Year 2022-23. Further, Phase I of Bharatmala Pariyojana envisages to construct about 24,800 km of highways under the following categories: National Corridor (North-South, East-West and the Golden Quadrilateral), economic corridors, inter-corridor roads, feeder roads, international connectivity, border roads, coastal roads, port connectivity roads and expressways. The scheme will include the existing NHDP programme as well. The Government approved Phase-I of Bharatmala Pariyojana in October 2017 with an aggregate length of about 34,800 km (including the residual NHDP stretches of 10,000 km) at an estimated outlay of approximately Rs.5.35 trillion. We believe that the Government’s focus on and sustained increases in budgetary allocations for the sector as well as the development of comprehensive infrastructure policies will be beneficial to business in terms of bringing in more opportunities for acquisition of assets.

Growth opportunities and rights to expand portfolio of assets through acquisition of Sponsor’s portfolio and third party Projects
Established sponsors often provide access to a network and pipeline of potential projects or acquisition opportunities in the roads sector, enabling the Trust to strategically expand its portfolio, diversify risk, and capitalize on growth opportunities. The sponsor has 546 km worth of road assets under various stages of construction.

Through the ROFO Agreement, the Trust has the right of first offer to acquire certain assets owned or to be acquired by the Sponsor. As of the Offer Document date, the Sponsor is developing 17 HAM assets, totaling approximately 546.164 km of roads across 11 states in India. This access to existing ROFO SPVs and future road assets from the Sponsor is expected to be a key source of growth for the Trust. Additionally, the Trust intends to acquire road assets from third parties.

Consistent track record of the Project Manager in O&M
The Project Manager has a strong presence in the infrastructure sector, with experience in key projects like the Kiratpur, Narnaul, Hardiya, and Mumbai Metro Rail projects under the PPP model. The Kiratpur project reduces travel time between Shimla and Mandi, while the Hardiya project connects Patna to Ranchi, benefiting both states economically. The Khajuwala project is crucial for the movement of armed forces, and the Mumbai Metro is expected to alleviate traffic congestion. The Sponsor’s expertise in road asset development and maintenance, including regulatory compliance and risk management, supports smoother operations and lower maintenance costs for the Initial Portfolio Assets and the Trust. The independent engineers of the Initial Portfolio Assets have not identified any operation or maintenance issues, with maintenance conducted routinely. As the Project Manager of the Trust, the Sponsor is expected to minimize maintenance costs for the assets.

Peer Comparison

Key Risks & Concerns

Failure and inability to identify and acquire new infrastructure assets
The Initial Portfolio Assets include nine road assets across seven states with an average remaining concession period of 11.7 years. Future growth may involve acquisitions, but challenges like asset availability, integration, and liabilities could impact profitability. The Sponsor is developing 17 additional HAM assets, but acquiring new assets and maintaining returns is not guaranteed.

Increases in operating and/or in material or labor costs.
The fixed terms of the Concession Agreements and rising O&M costs due to factors like material prices, natural disasters, and regulatory changes could negatively impact the Trust’s financial performance and operational flexibility. Any failure to meet O&M standards may lead to penalties, reduced profits, and challenges in debt repayment or distributions to Unitholders.

Dependence on third parties for O&M
The Trust relies on third-party contractors for the operation and maintenance of assets, with risks including potential non-renewal of licenses, liability for labor costs, and violations of labor laws. Delays or poor performance by these third parties could adversely affect the Trust’s operations, financial condition, and reputation.

Floating interest rates in project SPVs’ financing agreements
The Project SPVs are exposed to risks from floating interest rates, which may be affected by changes in monetary policy. Any increase in interest rates could negatively impact the Trust's operations, financial condition, and cash flows.

Outlook and Valuation

Capital Infra Trust (erstwhile National Infrastructure Trust) is an InvIT that prioritizes strategic investments in Infrastructure projects mainly national highways. These projects bridge geographical gaps, fostering economic activity and unlocking the potential of underserved regions.

InvITs (including REITs) have a potential of around Rs 8 Lakh crore in India over the next 4-6 years, across various infrastructure sub-sectors. InvITs are expected to play a crucial role in the National Infrastructure pipeline, where India is envisaging investments across infrastructure and other sub-sectors. They will also have an important role to play in the National Monetization Pipeline (NMP), where about Rs. 6 trillion of brownfield assets will be monetized. Other tailwinds include easing of regulations for InvITs, including allowing issuance of debt securities, increasing the Net Debt to AUM cap to 70% from 49% earlier, etc.

InvITs are increasingly being seen as assets that provide a stable yield and consistent growth. At the same time, InvITs will help unlock the value that is embedded in national infrastructure assets. 

Capital Infra Trust’s sponsor, GCL possesses over 15 years of experience in the road infrastructure segment and has a strong order book that can effectively be transferred to the InvIT over a period of time. Consistent annuity income, and enhanced longevity of assets of more than a decade, ensure stability in cash flows, for both the the company and its investors.  At the same time, while Indus Infra is quoting around NAV, IRB InvIT is quoting at a discount of around 38%. Investors should carefully monitor asset valuations, interest rate fluctuations, and government payment delays. Considering the growth in India’s infrastructure, particularly in roads and highways, we recommend aggressive well-informed investors to SUBSCRIBE to the issue for the long term.

Key Information

Use of Proceeds:
The total issue size is Rs.1578 cr, which comprises of a fresh issue of Rs. 1,077cr and an Offer for Sale worth Rs. 501cr. From the net proceeds of the issue, the company will utilize towards providing loans to the Project SPVs for repayment/pre-payment of external borrowings and unsecured loans, in part or in full, from the financial lenders (including any accrued interest and prepayment penalty).

Book running lead managers:
SBI Capital Markets Limited, HDFC Bank Limited

Management:
Manish Satnaliwala (chief executive officer), Amit Kumar(chief financial officer), Shubham Jain (Company Secretary), Yudhvir Singh Mailk (Chairman and non-executive and independent Director), Rakesh Kumar (non-executive Director), Neeraj Sheoran (non-executive Director), Bant Singh Singla (non-executive Director), Satish Chandra (non-executive and independent Director), Vijayalakshmi R. Iyer (non-executive and independent Director).